Accounting C2 Lesson 1 PDF

Chapter 2
The Accounting Equation and The Double-Entry System
Lesson 1: Elements of Financial Statements
Target Outcomes
At the end of the lesson, you are expected to:
1. enumerate elements of financial position, and income statement;

2. explain elements of financial position, and income statement; and
3. understand the accounting equation through computation of its elements.
Abstraction
Elements of The Financial Statement
A. Financial Position (Balance Sheet)
1. Asset – is the resource controlled by the enterprise as a result of past events

and from which the future economic benefits are expected to flow to the
enterprise. Three phases must be given importance to understand what are
assets:
o Controlled by the enterprise- obtain the ability to obtain economic benefits
and to restrict the access of others.
o Past event-the event must take place before asset arise.
o Future economic benefits- may be in the form of cash, account
receivables, or any item which may be sold.
– it includes cash, cash equivalents, short-term investments, notes

receivable, accounts receivable, inventories, prepaid expenses, property, plant
and equipment, long-term investments, intangible assets and other assets.
2. Liability – is a present obligation of the enterprise arising from past events, the
settlement of which is expected to result in an outflow from the enterprise of
resources embodying economic benefits.
1
CHAPTER 2 LESSON 1 ACCOUNTING 1
o Obligations- maybe legal or not
o Transfer economic benefits-this could be a transfer of cash or other
property, the provision of service or the refraining from activities which
would otherwise be profitable.
o Past event-The event must take place before liability arise.
Settlement of liabilities may occur in payment of cash, transfer of other

assets, provision of services, replacement of obligation with another obligation, or
conversion to equity.
– it includes notes payable, accounts payable, accrued liabilities, unearned
revenues, mortgage payable, bonds payable and other debts of the enterprise.
3. Equity – is the residual interest in the assets of the enterprise after deducting all
its liabilities. Equity may pertain to any of the following depending on the form of
business organization:
⚫ In a sole proprietorship, there is only one owner’s equity account because

there is only one owner.
⚫ In a partnership, an owner’s equity account exist for each partner.

⚫ In a corporation, owner’s equity or stockholder’s equity consist of share
capital, retained earnings and reserves representing appropriations of
retained earnings among others.
B. Performance (Income Statement)
1. Income – is increases in economic benefits during the accounting period in the

form of inflows or enhancement of assets or decreases of liabilities that result in
increases in equity, other than those relating to contributions from equity
participants.
2. Expenses – are decreases increases in economic benefits during the accounting
period in the form of outflows inflows or enhancement of assets or incurrence of
liabilities that result in decreases in equity, other than those relating to
contributions from equity participants.
3. Losses – represent other items that meet the definition of expense and may, or
may not, arise in the course of the ordinary activities of the enterprise. Losses
2
represent decreases in economic benefits and as such are no different in nature
from other expenses.
THE ACCOUNT
The account is the basic summary device of accounting. A detailed record of the
increases and balance of each statement that appears in an entity’s financial
statements. The simplest form of the account is known as the “T” account. The account
has three parts:
1. Account Title
2. Debit Side 3. Credit
The Accounting Equation – this equation presents the resources controlled by

the enterprise, the present obligation of the enterprise and the residual interest in the
assets.
It states that assets must always be equal to the liabilities and owner’s equity.
It represented as:
Assets = liabilities + Owner’s Equity
The assets or the left side of the equation should equal the right side of
the equation which is the sum of liabilities and owner’s equity.
Utilization of Learning
1. Classify the following into Assets, Liabilities, Owner’s Equity
1. Accounts Payable
2. Furniture
3. Account Receivables
4. Owner’s Capital
3
5. Vehicle
6. Personal withdrawals
7. Equipment
8. Mortgage Payable
9. Unused Supplies
10. Cash
Solve the following independently. (Lifted from Basic Accounting by Catacutan et.al)
2. Compute for the missing element:
ASSETS LIABILITIES OWNER’S EQUITY
a. 950,000 520,000 __________
b. 780,000 620,000 ____________
c. 480,000 150,000
d. 900,000 (2/3) (1/3)
e. 600,000
(60%)
3. The net worth of Tricky Services amounted to P5,250 000. Creditors’ claims are
equivalent to 20% of total assets. How much is the residual claim of the owner over the
business?
4. The creditors’ claims over Alipin Services amounted to P1,400,000 and its net assets
was equivalent to 70% of its total liabilities as at the start of the year. As a result of the
operations during the year, liabilities increased by 20% and net assets decreased by P
120,000. How much is the increase in Total Assets of Alipin Services during the year?
Supplementary Materials
4
5

Accounting C2 Lesson 1 PDF

Uploaded by

Copyright:

Available Formats

Accounting C2 Lesson 1 PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accounting C2 Lesson 1 PDF

Uploaded by

Copyright:

Available Formats

Chapter 2

The Accounting Equation and The Double-Entry System

Lesson 1: Elements of Financial Statements

At the end of the lesson, you are expected to:

1. enumerate elements of financial position, and income statement;

Elements of The Financial Statement

A. Financial Position (Balance Sheet)

1. Asset – is the resource controlled by the enterprise as a result of past events

– it includes cash, cash equivalents, short-term investments, notes

Settlement of liabilities may occur in payment of cash, transfer of other

⚫ In a sole proprietorship, there is only one owner’s equity account because

⚫ In a partnership, an owner’s equity account exist for each partner.

B. Performance (Income Statement)

1. Income – is increases in economic benefits during the accounting period in the

2. Debit Side 3. Credit

The Accounting Equation – this equation presents the resources controlled by

Assets = liabilities + Owner’s Equity

1. Classify the following into Assets, Liabilities, Owner’s Equity

2. Compute for the missing element:

ASSETS LIABILITIES OWNER’S EQUITY

a. 950,000 520,000 __________

b. 780,000 620,000 ____________

d. 900,000 (2/3) (1/3)

You might also like